School Specialty to exchange another $57.5 million 3.75% convertibles

By Angela McDaniels

Tacoma, Wash., July 7 - School Specialty, Inc. will issue $57.5 million principal amount of new 3.75% convertible subordinated debentures due 2026 in exchange for an equal amount of its 3.75% convertible subordinated debentures due 2026 issued in 2006, according to an 8-K filing with the Securities and Exchange Commission.

The company completed a similar exchange in March, in which it issued $100 million of the new convertibles in exchange for an equal amount of the old 3.75% convertibles. Following the latest exchange, $42.5 million principal amount of the old 3.75% convertibles will remain outstanding.

The company is seeking to amend some of the covenants under its credit facility. The amendment is conditioned on the exchange of at least $50 million principal amount of the old convertibles.

The principal of the new convertibles will accrete at a rate of 3.9755% per year, compounding on a semiannual basis. The accreted portion of the principal does not bear interest and is not convertible.

The conversion ratio of the new convertibles is 44.2087 shares for each $1,000 of original principal amount, which equals a conversion price of $22.62. The company's stock closed at $15.28 (Nasdaq: SCHS) on July 6.

School Specialty can settle conversions in cash or a combination of cash and common stock.

The conversion ratio of the old convertibles is 19.4574 for a conversion price of $51.39.

The new debentures are convertible at any time beginning Nov. 30, 2025. Prior to that, they are convertible under the following circumstances:

• During any fiscal quarter if the company's closing stock price is more than 130% of the conversion price for at least 20 out of the 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter;

• During the five business days after any five consecutive trading day period in which the trading price per $1,000 original principal amount of the new convertibles for each trading day of that period is less than 98% of the product of the closing stock price and the conversion rate;

• If the new convertibles have been called for redemption;

• If specified distributions to holders of the company's common stock are made or if certain change-of-control events occur.

For the old convertibles, there is a contingent conversion hurdle at 130% of the conversion price.

The new convertibles are callable beginning May 30, 2014, and they are putable on Nov. 30, 2014, Nov. 30, 2018 and Nov. 30, 2022. In each case, the redemption amount will be 100% of the accreted principal amount.

The old convertibles become callable Nov. 30, 2011, and they are putable on Nov. 30, 2011, Nov. 30, 2016 and Nov. 30, 2021.

The new convertibles are being issued under separate, privately negotiated exchange agreements reached on July 7.

Greenville, Wis.-based School Specialty provides curriculum, supplemental learning resources and school supplies.

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